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Thu 12 Feb 2009 12:22 AM

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Egyptian economic growth slows to 4.1%

Egyptian economic growth fails to meet market forecasts as manufacturing and Suez Canal revenues soften.

Egypt's economy grew below market forecasts at an annual 4.1 percent rate in the second quarter of the current fiscal year, with revenues from manufacturing and the Suez Canal both taking hits.

The slowdown in growth, which reached 7.7 percent in the same quarter a year earlier, reflects the impact of the global financial and economic crisis on the economy of the most populous Arab country.

Cabinet spokesman Magdy Rady described the slowdown as "scary" but said it was beyond the control of the government. He later told Reuters the government was still "hoping to achieve a growth rate" around 5 percent this year.

He said revenues from the Suez Canal grew only 1.4 percent in the quarter compared to 22 percent a year earlier. Egypt's fiscal year runs from July through June.

"The Suez Canal is a big contributor to growth," said Mohamed Abu Basha, an economist at Egyptian investment bank EFG-Hermes.

The economy grew 7.2 percent in the 2007/08 fiscal year, 0.7 percentage points of that coming from the waterway, he said.

The canal is an important source of foreign currency for Egypt, along with tourism, oil and gas exports and remittances from Egyptians living abroad.

A cabinet statement said a drop in the revenues of oil and natural gas exports due to the decline in international prices drove Egypt's trade deficit up by 25 percent compared with the first quarter in the current fiscal year.

The statement said economic indicators in the second quarter "reflect the impact of the global financial crisis in a deeper way in the Egyptian economy".

Reham El-Desoki, a senior economist at Beltone Financial investment bank, said the growth rate in the second quarter was slightly below her forecast of 4.5 percent.

Abu Basha at EFG-Hermes forecast gross domestic product growth of 4.8 percent in 2008/09 and 3.4 percent the following year as private consumption and tourism slowed.

Finance Minister Youssef Boutros-Ghali said this week the country was facing the threat of a "serious contraction" as the global financial crisis hits tourism, investment and the Suez Canal.

The cabinet statement on Wednesday said unemployment in the second quarter rose to 8.8 percent from 8.6 percent. (Reuters)

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